A nasty 120+ point move higher in EUR/USD following Fed commentary suggesting that inflation in the current environment is largely contained, and only further economic data suggesting otherwise will trigger the Fed's 18th interest rate increase. The market took this as a cue that the highest dollar yields have been seen, and more attractive yields will be found elsewhere as euro, yen, cable, and the Swiss franc were all approximately 1.00% better against the dollar. But let's take a step back, as we often do after chaotic markets, and survey the real damage.

EUR/USD remains well contained in this early 1.2680-1.2475 summer range, and only a break above upper resistance will bring the Fib zone 1.2800 into focus. Our advanced Fib readers will recognize this as a Bearish Butterfly. 
 

 
USD/JPY was in more of a hurry to test the lower end of its respective range at trend channel and minor Fib support .236 at round number 115.00. A strong dollar move lower that saw EUR/USD coming up 20 points short of range resistance, while USD/JPY bumped right up against its range and channel support can mean only one thing, EUR/JPY was lower.

So, while short dollars with a weak EUR/JPY, we opt to be short USD/JPY as opposed to long EUR/USD. If wee see a 115.00 break tonight, look to sell into the very first retracement with stops just above 115.00 targeting June 21 lows of 114.40.

Tomorrow we get PCE Deflator which will be another strong piece of data that helps to guide the Fed operations. Tomorrow's close ahead of the holiday weekend will be vital to next week's outlook.

Todd Gordon is a Technical Currency Strategist and Fund Trader with GAIN Capital Group.

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